## Facts

- Morgan Stanley hired Rajesh Gupta in 2013 as a financial advisor; his employment agreement referenced firm policies and procedures and included a merger clause requiring signed writings for amendments to that agreement.
- Morgan Stanley maintained an internal dispute-resolution program (CARE) applicable to U.S. employees; it stated the program could be changed with advance notice and that changes would be binding on both the employee and the firm.
- In 2015, Morgan Stanley revised CARE to require mandatory arbitration for employment-related disputes, including discrimination claims.
- Morgan Stanley emailed employees, including Gupta, notice of the revised arbitration terms with links to the new arbitration agreement and guidebook, a no-penalty opt-out procedure, and a clear opt-out deadline; the email stated continued employment without opting out would constitute acceptance.
- Gupta did not opt out, did not respond to the email, and continued working for approximately two more years.
- After his employment ended, Gupta sued, alleging discrimination and retaliation under USERRA and a related defamation claim.
- Morgan Stanley moved to compel arbitration under the revised CARE arbitration agreement; the district court compelled arbitration and stayed the case.

## Issues

1. Under Illinois contract law, can an employee’s silence and continued employment, after clear notice of an arbitration offer with a no-penalty opt-out, constitute acceptance of the arbitration agreement?
2. If an arbitration agreement was formed, did the Federal Arbitration Act require compelling arbitration of Gupta’s USERRA and related claims?

## Decision

- The Seventh Circuit affirmed the order compelling arbitration and staying the litigation.
- The court held that, under Illinois law, Morgan Stanley could reasonably treat Gupta’s silence plus continued employment past the opt-out deadline as acceptance of the arbitration agreement.
- The court found the FAA requirements satisfied: a written arbitration agreement existed, Gupta’s claims fell within its scope, and Gupta refused to arbitrate by pursuing litigation.

## Legal Principles

- Under the FAA, arbitration must be compelled when there is a written agreement to arbitrate, the dispute falls within its scope, and the resisting party has refused to arbitrate.
- State contract law governs whether an agreement to arbitrate was formed; under Illinois law, silence may operate as acceptance when circumstances make it reasonable for the offeror to interpret silence as assent.
- Clear notice that silence will be treated as acceptance, coupled with a meaningful opportunity to reject (including a no-penalty opt-out) and continued employment after the deadline, can manifest assent and form a binding arbitration agreement.
- When an employer communicates mandatory arbitration as the exclusive forum for covered employment disputes and the employee continues working without opting out, employment-related statutory and common-law claims within the agreement’s scope are subject to arbitration.

## Conclusion

The court enforced Morgan Stanley’s revised employee arbitration program because Gupta received clear notice with a no-penalty opt-out, did not opt out, and continued working, which Illinois law treats as acceptance; the resulting written arbitration agreement required arbitration under the FAA.


Gupta v. Morgan Stanley Smith Barney, L.L.C., 934 F.3d 705 (7th Cir. 2019)